Malaysia backs $7 bln trans-peninsular oil pipeline

May 9, 2007
Singapore Democrats

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Reuters
08 May 07

Malaysia gave its blessing on Monday to plans to build a $7 billion crude-oil pipeline across the country, providing a short-cut between Middle East producers and East Asian consumers.

The new line, which would also feature a new refinery at its western end and huge storage tanks for use by Asian nations, would bypass the crowded and piracy-prone Malacca Strait, although it comes just two years after Thailand abandoned a similar scheme due to rising costs and safety concerns.

“Yes, we have agreed,” Prime Minister Abdullah Ahmad Badawi told reporters when asked about a newspaper report that the private-sector pipeline project had received cabinet backing.

“We have always wanted to do more for that area.”

The local Business Times said unlisted local firm Trans-Peninsula Petroleum would invest $7 billion over eight years to build the pipeline, helping ships avoid the busy Malacca Strait, conduit for over a quarter of the world’s seaborne crude.

The first phase, costing only $2 billion, could transport two million barrels per day (bpd), the report said, which would rank it among the largest oil pipelines in the world.

Oil tankers currently take Middle East crude through the Malacca Strait and around Singapore before sailing north to ports in energy-guzzling nations like Japan, China, and South Korea.

Despite the government’s backing, the 300-km pipeline project has aroused industry scepticism, particularly given that the crude oil would simply be shipped on to East Asia and the project appeared to lack definitive financial backers.

“The project is a no-go if it is just for pumping crude from west to east Malaysia as it will incur more (shipping) costs and no time saving at all,” said Ong Eng Tong, an energy consultant from Mabanaft International in Singapore.

A super-tanker could take up to three days to unload, including mooring and waiting time, adding one day to the usual two-day voyage around the peninsula, Ong added.

“The ideal situation would be for the crude to discharge into tankage at either side, refine it at the east side and ship the products out. This would be more feasible and will pose a threat to the Singapore refineries,” he said.

But the Malaysian blueprints envisage refineries being built on the west-coast end of the pipeline, not the east.

The pipeline would stretch from the sleepy west coast town of Yan, which the government has designated a petroleum development zone, to the small fishing port of Bachok in the east.

Yan is also the site for a $2.2 billion refinery project, one of two planned for the northwest, and a plan to build storage tanks with a 30-day stock capacity of 150 million barrels, serving as auxiliary strategic reserves for Asian consumers.

The Yan refinery, with planned capacity of 200,000 bpd, is being proposed by an unlisted Malaysian firm linked to local tycoon Syed Mokhtar Al-Bukhary.

Construction of the refinery will start in July, an aide to Kedah’s chief minister told Reuters in March. Iran’s state oil company had been invited to take a stake in it, the aide said.

Abdullah did not say when the pipeline project would begin but said it was among projects planned for the north and east of the country under a five-year development plan for 2006-2010.

Under the development blueprint, the government plans to harness billions of dollars in private capital to bring more industry and wealth to rural areas.

The Business Times quoted Trans-Peninsula Petroleum Chairman Rahim Kamil Sulaiman as saying his firm would harness foreign capital for the pipeline project, with investment from the Middle East, Islamic funds and major consumers in East Asia.

In early 2005, Thailand scrapped an over $7 billion plan to build a 300,000 bpd refinery and a trans-peninsula “land bridge” – a 240-km pipeline – as the rising price of steel and materials drove up costs and the previous year’s tsunami raised questions about its safety